Student loans need permanent solution

Interest rates on subsidized Stafford loans for college students doubled Monday, from 3.4 percent to 6.8 percent, when a temporary cap passed a year ago expired. That prompted bold headlines, aggrieved political posturing and fearful comments from borrowers already burdened by debt and facing a tenuous job market once they get out of school.

We take Congress at its word that this will be dealt with, retroactively, when members return from the July Fourth holiday. Next year is an election year, and neither Democrats nor Republicans want legions of college students who have been hammered by an estimated $2,600 of extra interest apiece following them around with protest signs.

However, what’s needed isn’t another bandage, but a permanent fix that will be fair to both college students and the taxpayers who subsidize these loans.

The cost of attending college rose by 440 percent between 1974 and 2009, according to the National Center for Public Policy and Higher Education, and the upward spiral has seemed particularly open-ended during the last decade.

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According to the Consumer Financial Protection Bureau, college costs have risen by 5.2 percent annually during the last 10 years, well above the inflation rate. If scholarships, grants and working won’t cover the bill, the remaining alternative is loans.

According to Project Student Debt, two-thirds of U.S. college students are in debt, for an average of roughly $27,000 apiece. Total student loan debt has topped $1 trillion.

Just 20 years ago, less than half of U.S. students left college with debt; and the average amount was about $15,000 in today’s dollars.

President Barack Obama and Republicans in the Senate and House want to tie subsidized and unsubsidized student loan rates to the cost of 10-year Treasury notes. The differences are in the points that would be added to derive the final rates and how those rates and monthly payments would be capped. Obama also wants to use any savings to expand Pell Grants for college students, while the GOP wants the program to be revenue neutral.

Senate Democrats want to tie interest rates to a shorter-term government borrowing rate, plus a certain amount to cover administrative costs, and there also would be caps.

We think the raw materials are there for a permanent solution -- we’d prefer a market-based approach, rather than artificially maintained rates -- but of course nothing got done before the holiday break. Congress doesn’t seem to be able to accomplish anything unless it’s pinned against a wall, and a bunch of people are facing the consequences of its inability to reach a consensus. That’s not the optimum way to run a country.